October 6, 2022


KEY POINTS

  • GameStop hasn’t offered many details about how it plans to survive the digital future of gaming
  • Instead, the big bet is on risky NFTs, and the market for them is imploding

GameStop‘s (GME -2.47%) current turnaround strategy is still pretty opaque to investors, but what we’ve seen is primarily focused on non-fungible tokens, or NFTs, a digital ledger technology that gives the right to own or use a digital asset.

A video game retailer was launched in May GameStop Walletself-imprisonment Ethereum user-controlled wallet that can be accessed without leaving the browser, after that in July NFT market where tokens can be bought and sold.

It remains a mystery how exactly GameStop will survive, let alone thrive, in a video game industry that is increasingly shifting to digital and downloadable play. But chairman Ryan Cohen seems to believe that includes driving modern cryptocurrency and NFT markets.

Unfortunately, it also looks like the NFT idea may be a failure and puts GameStop’s future in doubt.

Crypto in decay

Cryptocurrencies and NFTs are in free fall. Bitcoin, the largest cryptocurrency by market value, is down 60% in 2022 to $19,000, while the second largest cryptocurrency, Ethereum, is down 64%. Volume in the NFT markets is also collapsing, with Opensea, the most popular market, seeing 90% of its volume disappear by August.

The GameStop market isn’t doing any better during this crypto winter. The platform got off to a fast start in its first week of business, generating just under $2 million in transactions on its first day, with the top 50 collections generating more than $7.5 million worth of transactions in its first week. But that was about as good as it got.

GameStop Corp.
The Motley Fool

Based on GameStop’s 2.25% transaction fees, GameStop NFT had revenue of about $44,500 on sales volume of $1.98 million on its first day of operation. Cointelegraph, however, reports that NFT fell to just over $3,750 in daily revenue by the end of August with a volume of $167,000, and has fallen further since then. Data from Dappradar shows that in the last 24 hours, volume has dropped to $85,000, which equates to a fee income of just $1,912 per day. Average prices are also falling, down 22% in the past month.

If GameStop was hoping that NFT would give it something to do while it figured out what to do with its video game retail business, it appears to be falling apart.

The diminishing role of NFTs in games

NFTs are generally out of favor, and even in GameStop’s primary business, gaming companies are suddenly abandoning their embrace of the technology.

Bloomberg Notes studios dove into NFTs at the height of their popularity, believing the tokens could provide a way for players to own digital in-game rewards won or purchased while providing themselves with a new source of income. But now they are running away from it.

Minecraft Developer Mojang has banned companies from creating NFTs for its game and refuses to allow Minecraft worlds to be built blockchain networksreversing previous decisions to explore their potential. Ubisoftthe creator of some extremely popular titles such as Ghost Recon and Assassin’s Creedalso gave up looking for NFT markets in the game.

Bloomberg says it later Take-Two Interactive bought Zynga for its blockchain potential, has since studiously avoided discussing it on every quarterly earnings conference call.

If gaming companies want to have little to do with NFT and cryptocurrency, how will video game retailer GameStop make it a viable part of their business?

A foundation built on sand

All this does not bode well for the future of retail. GameStop has only survived so far because it used its strengths wisely meme stock status and raised a ton of money to pay off his debt. So while it’s consistently losing money at the moment ($267 million in the past quarter), it won’t be draining its bank account anytime soon (it still has nearly $1 billion in cash and cash equivalents).

Even so, GameStop needs to come up with a realistic vision of how to grow its business. NFT markets and cryptocurrencies have always been risky ventures on which to build recovery. Now that gaming companies pulling back from them, investors can better see that it’s best to stay away from GameStop’s stock until it brings a viable plan to the table.

This article originally appeared in The Motley Fool.

Rich Duprey has no position in any of the listed stocks. The Motley Fool has positions and recommends Bitcoin, Ethereum, and Take-Two Interactive. The Motley Fool recommends Ubisoft Entertainment and recommends the following options: Long January 2023 $115 calls on Take-Two Interactive. The Motley Fool has a disclosure policy.

A display shows the logo and trading information for GameStop on the New York Stock Exchange (NYSE) in New York, U.S., March 29, 2022.
A display shows the logo and trading information for GameStop on the New York Stock Exchange (NYSE) in New York, U.S., March 29, 2022.
Reuters / BRENDAN MCDERMID



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